Vanguard Research recently reported that 97.5% of participants made no changes in response to the market volatility in August. Participants holding a single target-date fund traded even less frequently – 99.6% of pure target-date fund investors did not react to the August market volatility by trading. Year-to-date, the net movement of money among traders has been generally toward fixed income investments. Even at the height of the August market volatility, there were significant gross flows toward equities. Vanguard noted that late July and early August were characterized by three distinct events: the debt ceiling debate, the downgrade of U.S. Treasury securities and a rising number of weaker-than-expected economic indicators. Stock prices were highly volatile during the first two weeks of August.
Historically, 1% of stock market trading days are associated with a change in stock prices of greater than +/–3%. During the first two weeks of August, 5 of 10 trading days were characterized by this level of volatility. On a year-to-date basis, 9% of participants have traded and only 2% of pure target-date fund holders have traded. Trading activity thus far in 2011 appears to be on par with 2009 and 2010, and down from 2008, when 16% of participants traded.